In a world of rational expectations,
A) an anticipated increase in money supply leads immediately to higher nominal
interest rates.
B) an anticipated increase in money supply leads immediately to lower nominal interest
rates.
C) an unanticipated increase in money supply leads immediately to higher nominal
interest rates.
D) an unanticipated decrease in money supply leads immediately to lower nominal
interest rates.
Which of the following was an objective of the framers of the Federal Reserve System?
A) Decentralized power
B) Executive branch power
C) Elimination of private-sector influence
D) Consolidation of the banking industry
The aggregate demand curve is negatively sloped because a lower price level
A) reduces the real money supply.
B) increases the real money supply.
C) reduces aggregate income.
D) increases aggregate income.
An example of a financial instrument in the capital market is
A) commercial paper.
B) a corporate bond.
C) a negotiable bank CD.
D) a U.S. Treasury bill.
Because of a regulatory environment that encourages foreign participation and
competition in financial services, the domestic markets in the __________ are not really
distinct from the foreign markets.
A) the United Kingdom
B) the United States
C) Japan
D) Germany
An increase in the expected rate of inflation causes
A) a decrease in the demand for loanable funds.
B) an increase in the supply of loanable funds.
C) interest rates to rise.
D) interest rates to fall.
Which of the following statements is not true with regard to repurchase agreements?
A) In a typical repo, an entity sells government securities and agrees to repurchase them
at a higher price the next day.
B) A reverse RP involves borrowing funds overnight.
C) The repo market has evolved into maturities ranging from one day to three months.
D) In practice, a repo is used to raise funds for anything the borrower chooses.
Assume that the required reserve ratio is 10 percent. A bank has deposits of $1,000,000
and cash of $500,000 in the Fed. The bank has demand deposits equal to $1,500,000.
Given this information, the bank has excess reserves of
A) $850,000.
B) $350,000.
C) $1,350,000.
D) None of the above.
A share of stock expected to pay an annual dividend of $12 forever has a market price
of __________ when the Treasury bond rate is 6.5% and the stock has a risk premium
of 4.5%.
A) $109.09
B) $184.62
C) $266.67
D) $600
According to Classical interest rate theory, falling interest rates will
A) increase the demand for money.
B) decrease the demand for money.
C) decrease investment expenditures.
D) decrease the saving rate.
“The price level may fall but it will not necessarily lower the interest rate, not if we are
in a liquidity trap.” This is a statement a __________ economist might make as an
explanation of why the economy __________ pull out of a recession.
A) Classical; will
B) Classical; may not be able to
C) Keynesian; will
D) Keynesian; may not be able to
From 1980 to the mid 1990s the number of independent banking organizations in the
United States
A) rose about 10%.
B) stayed roughly constant.
C) fell about 10%.
D) fell about 35%.
Which of the following is an equilibrium condition in the ISLM model?
A) Labor demand = labor supply
B) Actual saving = desired saving
C) Government spending = taxation
D) Money supply = money demand
Reserve requirements are highest for
A) transactions deposits.
B) bank borrowings from foreign branches.
C) federal funds.
D) business time deposits.
Some mortgage pools are referred to as
A) municipal securities.
B) pass-through securities.
C) preferred mortgages.
D) common securities.
The over-the-counter market is located in
A) New York.
B) Los Angeles.
C) Chicago.
D) None of the above.
One of the most popular types of mortgage pools is insured by the
A) Federal Deposit Insurance Corporation.
B) Federal Savings and Loan Insurance Corporation.
C) Federal Home Loan Bank Board.
D) Government National Mortgage Association.
Everything else being equal, most investors prefer __________ securities, while most
bond issuers prefer to issue __________ securities.
A) short-term; long-term
B) long-term; long-term
C) short-term; short-term
D) long-term; short-term
Non-transactions deposits are different from transactions deposits in that
A) transactions deposits have unlimited check writing privileges while non-transactions
deposits do not.
B) transactions deposits have limited check writing privileges while non-transactions
deposits have unlimited check writing privileges.
C) transactions deposits have no check writing privileges while non-transactions
deposits do.
D) transactions deposits have no check writing privileges while non-transactions
deposits have limited check writing privileges.
If the Federal Reserve wants to lower the federal funds rate, it should
A) increase reserve requirements.
B) announce a lower rate.
C) request a lower rate.
D) purchase government securities.
The value of the put option rises when the underlying asset
A) experiences price increases.
B) experiences price declines.
C) experiences reduced volatility.
D) has a relatively short maturity.
The __________ is calculated as the face value minus the purchase price divided by the
face value.
A) coupon equivalent yield
B) bond equivalent yield
C) yield on a discount basis
D) yield to maturity
A bank can safely lend only an amount equal to its excess reserves because
A) all of its reserves are now required reserves.
B) borrowers will spend the proceeds of their loans, and the bank will lose all of its
excess reserves.
C) the excess reserves will fall to zero when the bank makes the loans.
D) This is not true since a bank can safely lend an amount equal to its total reserves.